12 ★ FINANCIAL TIMES Tuesday4 February 2020
Stampedes are rarely a pretty sight. In
recent years, banks have rushed into
wealth management, lured by low
capital requirements and high returns.
That is making life harder for private
Swiss bankJulius Baer, which has just
0.6 per cent of the highly fragmented
market.
Yesterday its shares fell 5 per cent, as
it reset targets, cut jobs and announced
a slump inpre-tax profits, dented by
writedowns and legal charges. Many
investors appear prepared to give
newish bossPhilipp Rickenbacher het
benefit of the doubt. Shares are up 18
per cent, nearly three times as much as
the Swiss SPI index, since the former
McKinseyite took charge last
September. But they trade at nearly a
fifth lower than its 10-year average, at
11.5 times next year’s earnings,
Cost-cutting is a big plank of Mr
Rickenbacher’s strategy, which
promotes profitability over growth. He
plans to shed 300 jobs — more than
4 per cent of its total workforce — in a
bid to push its 71 per cent cost-to-
income ratio below 67 per cent by- That would lift margins and help
reach the targeted adjusted return on
CET1 capital from 27 per cent now to
more than 30 per cent. Over the past
decade, the bank has grown assets
under management at a stonking
annual rate of 11 per cent says Jefferies.
It will now seek to ensure that client
relationships make money by, for
example, converting them from
transaction to fee-based accounts. That
might not be easy given the
tightfistedness of some of the
well-heeled.For sure, Baer needs to do
all this while fending offrivals, from
local competitors such asPictet ot
mightyuniversal banks such as
JPMorgan nd fintech arrivistes.a
It is in a nod to the latter that the
Swiss bank is increasing investment in
technology by a fifth this year.
But Mr Rickenbacher is taking the
right approach. Making money from
Julius Baer/the wealthy:
Phil levelsrisk-averse clients at a time of negative
interest rates is difficult. Scale for
scale’s sake makes no sense.We are all strong enough to bear the
misfortunes of others.Ryanair s thei
latest business to illustrate the truth of
that sardonic maxim.Thomas Cook
has collapsed and rival airlines such as
Norwegian ave been cutting routes.h
That has helped the Irish airline and
its UK nemesiseasyJet o fill more seatst
and squeeze more cash out of those
sitting in them.
In Ryanair’s case, that meant lifting
the load factor 1 percentage point to 96Ryanair:
seat featper cent in the third quarter, and
raising revenues per passenger by
13 per cent.
In similar vein, delays to the delivery
of theBoeing 37 Max — grounded 7
after two fatal crashes — are something
of a blessing in disguise.
Ryanair will not start taking delivery
until September or October. So scratch
that additional 4 per cent capacity
enabled by the bigger-bodied planes
for a couple more years.
But here’s the rub. The Max is more
efficient, burning 16 per cent less fuel.
Oil is the biggest cost for stripped-
down Ryanair, accounting for 38 per
cent of the total bill in the latest
quarter. These savings will now not
flow till late next fiscal year.
Also pushed further down the track
is a target to carry 200m passengers —or “guests”, to use Ryanair’s preferred
euphemism — now delayed by one or
two years to FY2025 or 2026. It expects
this year to fly 154m passengers.
That implies roughly halving
annual passenger growth — now at
8 per cent — and suggests a new dawn
for pricing deliberations at the shouty,
pack ’em in airline. In a best-case
scenario, it will focus on yields over
revenues; but earnings will still suffer.
Fittingly for an airline that
specialises in short hops, near-term
tailwinds are in Ryanair’s favour. But
they also help easyJet, the rival whose
occasional misfortunes Ryanair bears
most cheerfully of all. Shareholders
were right to push Ryanair’s share price
higher this morning. The smart ones
will exit before the inevitable medium-
term turbulence hits.Across sectors ranging from groceries
to healthcare, a single phrase suffices
to prompt wild-eyed hyperventilation
among incumbents: “Amazon’s coming
to get us.” Imagine the double dismay
of the concerned small lenders of
America on hearing: “Amazon AND
Goldman are coming to get us.”
The pair are planning toexpandthe
ecommerce group’s lending to US small
businesses. Without branches,
Goldman Sachs eeds other ways ton
find customers for its retail bank.
Amazon’s millions of third-party sellers
seem ripe for plucking. Vendor data
may gauge creditworthiness as usefully
as traditional credit scores.
Teaming up with Goldman will allow
Amazon to broaden banking services
without big audit and compliance costs.
JPMorgan Chase already issues credit
cards for Amazon. Even if the online
giant does not originate the loans
directly, it still benefits.
Vendors will use funds to increase
their Amazon store sales.
Regional and local banks should sit
back and relax, however. Like Marcus
and Apple Card, this seems a limited
initiative. It will do little to helpDavid
Solomon, Goldman boss, hit financial
targets. And Amazon has had limited
impact outside its core businesses.
A deal will probably build on
Amazon’s lending programme. This is a
modest affair, despite being around
since 2012. Third-party merchant
loans stood at only $863m at the end of- By contrast,JPMorgan adem
$33bn in small-business loans in 2019.
The loans dished out by Amazon,
reportedly $1,000-$750,000, would be
small. They would tend to be geared
towards borrowers who struggle for a
traditional business loan.
If Goldman is serious about closing
the valuation gap with its Wall Street
peers, here is a wild idea: buy a super-
regional bank.US Bancorp nda PNC
Financial re the two biggest. Eithera
would give the Wall Street titan the
widespread distribution it needs. Now
that really would give small-business
lenders something to worry about.
Goldman/Amazon:
friending lendingWuhan is the biggest transport hub in
inland China, home to the factories of
countless multinational and local
businesses. It is also the country’s
biggest ghost town. A lockdown
triggered by the coronavirus means
most plants are closed. The same
applies across more than a dozen other
Chinese cities. Supply chains, both
domestic and global, are at risk.
Autos and technology, two of the
most vulnerable sectors, suffered badly
when Chinese equities markets sold off
yesterday. An 8 per cent drop in the
local blue-chip CSI 300 index could
have been worse. Local markets have
been shut for more than a week for
new year holidays and a government-
imposed break. An injection of $171bn
in liquidity from the People’s Bank of
China will no doubt have helped.
Some stocks will suffer far more
lasting damage. Shares of carmaker
Dongfeng ave dropped over a fifthh
since the outbreak started. Most of its
production is based in Wuhan. Global
carmakers such asPeugeot, Renault,
Honda nda Nissan re at risk too. Thea
latter bases roughly half its Chinese
production in the city. Domestic supply
chains face prolonged disruption until
factories can reopen. Component
shortages appear inevitable.
This malady will hit global suppliers
as well. Tech companies such asApple,
Chinese smartphone makerXiaomi
and local electronic component maker
BOE Technology ely on factoriesr
in Wuhan. Apple blames its wider than
usual first-quarter earnings forecast
range on this. Production losses are
expected from Taiwan’s Hon Hai,
which makes most of the world’s
iPhones. Shares in the company, also
known asFoxconn, have fallen a tenth
in two weeks. Finding alternative
suppliers will be hard. More than a
third of factories supplying Apple are
based in Chinese cities which have
extended plant closures.
The timing is terrible. Just as growth
tapers off, containing the virus should
lop 1.6 percentage points off Goldman
Sachs’ China GDP growth rate estimate
in the first quarter, down to just 4 per
cent. That would be a much bigger hit
than Hong Kong’s during Sars.
The disruption underlines China’s
central position as a manufacturing
Coronavirus/China stocks:
supply chain reaction
hub for the electronics and automotive
industries. It could undermine that
status too. China’s large, fluid industrial
workforce has given the country a big
competitive advantage. The epidemic
has shown it has a serious downside.CROSSWORD
No. 16,391 Set by SLORMGORM
JOTTER PAD
ACROSS
1 An air of sorrow? (6)
4 Singer making comeback with
hit material (6)
8 Obedient types of greyhounds,
perhaps (7)
9 Aristo securing vessel that
elicits dislike (4-3)
11 Game artist out to get justice
(10)
12 Kind of drunk, having necked
last of beer (4)
13 Drop off a graduate near
centre of Ostend (5)
14 New anorak that German puts
on over jumper (8)
16 Insult a short environmentalist
in conflict (8)
18 Misleading plans Republican
puts into action (5)
20 Fire brief? Get away! (4)
21 A croupier manipulated
wheels? Ultimately that’s risky!
(10)
23 Make merry in saloon, possibly
by river (7)
24 Mad with one’s husband being
quite undomesticated (7)
25 Passion of French teacher,
English! (6)
26 Jockeys essentially associated
with dark horse (6)
DOWN
1 Beast from hell: a manticore (5)
2 Wine produced by nameless
country (7)3 What one might dress kippers
in? (9)
5 Severe wound seen in hospital
department (5)
6 Fish around river mostly in the
country (7)
7 Wicked of a nurse to go off
without one (9)
10 Old and cheeky? That needs to
change! (9)
13 An oppressive manner of a
worker on drugs? (1,4,4)
15 People round a theologian for
reading of story? (9)
17 Bit of angling or sumo
wrestling can be sexy (7)
19 Do wrong stealing horse by
quarry (7)
21 I could be a model? Tough
question! (5)
22 Winning group could create
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For notes on today’s breaking
stories go towww.ft.com/lexTwitter: @FTLex
Payment services companies are
scrambling for the scale that bestows
network advantages.Worldline lansp
to become Europe’s largest contender
by taking overIngenico, another
French business. Appropriately,
Worldline is offering Ingenico
shareholders a payment menu —
cash, shares or a mix of both.
Yesterday, the choice made no
immediate difference to a finely
judged valuation of €123 per share or
€9bn in total, including debt.
The deal would create a European
champion in a sector dominated by
US-based giants. Worldline is offering
a hefty 25 per cent premium to the
three-month undisturbed share
price. Big cost savings should
compensate the acquirer for that.Ingenico shares have doubled since
the start of 2019. Worldline’s takeover
premium pushes the valuation to 14
times enterprise value-to-ebitda, the
highest since 2015.
That recovery reflects a rebound in
sales at Ingenico’s banks and acquirers
unit. This sells payment terminals and
services to financial intermediaries.
Tough competition — including from
Ingenico’s ownretail payments
division meant European sales at the—
division fell 16 per cent in 2018. Last
year, the drop in comparable sales
slowed to just 5 per cent and the
business grew as a whole.
If Worldline’s bid succeeds, chief
executiveGilles Grapinet ust decidem
the fate of Ingenico’s terminals unit.
This could prove a dragging anchor in acombined business focused on
merchant services. This is the sweet
spot where new technology has most
traction and where the benefits of
scale are found.
Almost all of the €220m in annual
cost savings would be here. Worth
almost €1.7bn taxed and capitalised,
they would comfortably cover the
€1.5bn takeover premium. But they
would not be fully realised until 2025.
Mr Grapinet may opt to sell the
terminals unit. This has already
been legally siloed from the rest of
Ingenico. A disposal could fetch up
to €3bn. That would help to pay
down net debts to 2.5 times ebitda.
Further reductions would give
Europe’s new payments champion
scope to rejoin the land grab.FT graphic Sources: company; FT ResearchFiserv First DataFIS Worldpay
Global Payments TSYSWorldline IngenicoCielo
Global payments revenues
€bn€bnMerchant services will still dominate sales
sales ( of total) Worldline Ingenico CombinedMerchant services Point of sale (terminals)
Financial services Mobility and e-transactionalRetailBanks &
AcquirersCost savings cover premium
PremiumCost savings,
capitalised and
taxed at
Worldline/Ingenico: Europe’s payments champ
Worldline is buying fellow French payments group Ingenico for about €9bn. That will give Europe a top-five
competitor in a US-dominated sector. The combined group will focus on merchant services — the scalable
back end of payments. Cost savings should handily cover the premium.FEBRUARY 4 2020 Section:FrontBack Time: 2/20203/ - 18:59 User:joe.russ Page Name:1BACK, Part,Page,Edition:LON, 12, 1